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Bankruptcy

All bankruptcy cases are handled in federal courts under rules outlined in the U.S. Bankruptcy Code.

There are different types of bankruptcies, which are usually referred to by their chapter in the U.S. Bankruptcy Code.

  • Individuals may file Chapter 7 or Chapter 13 bankruptcy, depending on the specifics of their situation. 

    • Chapter 13 of the Bankruptcy Code provides for adjustment of debts of an individual with regular income and allows a debtor to keep property and pay debts over time, usually three to five years. 

    • Chapter 7 of the Bankruptcy Code provides for "liquidation" - the sale of a debtor's nonexempt property and the distribution of the proceeds to creditors.

  • Municipalities—cities, towns, villages, taxing districts, municipal utilities, and school districts may file under Chapter 9 to reorganize.

  • Businesses may file bankruptcy under Chapter 7 to liquidate or Chapter 11 to reorganize.

  • Chapter 12 provides debt relief to family farmers and fishermen.

  • Bankruptcy filings that involve parties from more than one country are filed under Chapter 15.

Bankruptcy Appellate Panels

Bankruptcy Appellate Panels (BAPs) are 3-judge panels authorized to hear appeals of bankruptcy court decisions. These panels are a unit of the federal courts of appeals, and must be established by that circuit. Five circuits have established panels: First CircuitSixth CircuitEighth CircuitNinth Circuit, and Tenth Circuit.

Exemptions

Traditionally, there have been a few debts that survive bankruptcy including student loans and tax debt. But if you have a student loan and suffer from "undue hardship" then you may be able to discharge some or all of your student loans in a bankruptcy adversary proceeding. The bankruptcy courts have defined what "undue hardship" means in what has been coined the Brunner Test. The Brunner Test has three factors and if all three factors met then you may be able to meet the burden of proof necessary to establish "undue hardship" and get your student loans discharged.

1. Making student loan payments would keep you from maintaining a minimal standard of living based on your current income and expenses. To meet this prong, you generally must have bare-bones expenses and must have done everything in your power to increase your income, without success.

2. Additional circumstances make it very likely that your financial situation will persist for a significant portion of your remaining loan period. Among other things, you may be able to successfully meet this prong if you have a serious mental or physical disability, received a poor-quality education or have maximized your income potential in your field.

3. You’ve made “good faith” efforts to repay your loans. You may meet this prong by making some loan payments, attempting to negotiate a payment plan and working to slash unnecessary expenses and increase income.

The process of attempting to discharge your student loan debt includes filing for Chapter 7 or Chapter 13 bankruptcy, and then filing a civil suit in federal court called an adversary proceeding. A complaint is filed in federal court related to the bankruptcy suit. The complaint will state facts that attempt to show the ways you meet the undue hardship standard. The possible remedies include full discharge, partial discharge, or no discharge of your student loan debt. 

As for taxes, as far as we know, still survive bankruptcy and will for the foreseeable if not perpetual future.

If you are contemplating filing for bankruptcy then contact us.